Stockton bankruptcy judge may issue two rulings

Stockton filed a revised debt-cutting plan last week that could lead to a deal with a holdout creditor, Franklin bonds, possibly enabling the city to emerge from bankruptcy without cutting pensions.

But however that plays out, a federal judge may make a clarifying ruling on the general issue of whether public pensions issued through the California Public Employees Retirement System can be cut in bankruptcy like other debts.

Two Franklin bond funds, which would get a $350,000 payment for a $35 million bond issue, claim unfair treatment because other creditors get most of what they are owed and the largest creditor, CalPERS, is untouched.

Stockton was able to negotiate agreements with all city unions, retirees and other major creditors, including two insurers of the city’s largest bond issues, who opposed the city’s eligibility for bankruptcy.

In a trial triggered by the opposition of Franklin, U.S. Bankruptcy Judge Christopher Klein last week heard closing arguments about whether the Stockton debt-cutting plan to exit bankruptcy should be confirmed by the court.

The judge took a step toward settling the holdout by scheduling July 8 for his decision on the value of the Franklin bond collateral, two golf courses and a park. Stockton put Franklin in the same creditor class of unsecured debt as retiree health care.

The small payment to Franklin was said to be similar to the deep cut in retiree health care. After Judge Klein’s ruling that retiree health care can be cut in bankruptcy, a debt valued at $544 million by the city was cut to a one-time payment of $5.1 million.

Stockton argued that the two money-losing golf courses and the park have little value due to use restrictions and other factors. But an expert testifying for Franklin said the golf course property was worth nearly $15 million.

A revised plan Stockton filed last week put Franklin in a class by itself. After the judge sets a value for the golf courses and park, said the new plan, the city will choose one of three options: full payment, full payment over time or transfer of the property.

Judge Klein

Klein said he may produce something before the scheduled July 8 ruling on the value of the Franklin bond collateral.

“I might write a couple of decisions because we have a couple of very distinct facets to the case,” he said.

The judge made a reference to the CalPERS contention that it’s “an arm of the state” protected by federal law in bankruptcies, and he said if a debt-cutting exit plan is “confirmed and not performed” there is a question about what can be done.

“I think the law is very confused in the area,” he said.

Klein previously has said he does not want to confirm an inadequate debt-cutting plan that could lead to a second bankruptcy. He mentioned reports that Vallejo, which did not cut pensions in bankruptcy, still faces deficits despite a 1-cent sales tax increase.

During the first phase of the Stockton trial last month, the judge reportedly said while listing several possible actions: “Or I might conclude the CalPERS contract can be impaired, but in this case the decision (by the city) not to do so made sense.”

A federal judge ruled in the Detroit bankruptcy that pensions can be cut. In a brief backing an appeal, CalPERS argued the ruling nullifies section 903 of the bankruptcy code that “expressly preserves state laws governing its creatures” in bankruptcy.

Noting that it’s a state-run system, CalPERS asked the appeals court to limit its ruling on Detroit’s eligibility for bankruptcy to city-run retirement systems like the one in Detroit.

The CalPERS brief filed last month also argued that the ruling was “not absolutely necessary” to determine Detroit’s eligibility for bankruptcy, and therefore is an “improper advisory opinion.”

Gearin

At the Stockton trial last week, an attorney for CalPERS, Michael Gearin, said any ruling on the impairment of pensions should be framed in specific terms. He said none of the parties in the trial have asked to impair or cut CalPERS obligations.

Gearin asked Judge Klein not to make an unnecessary ruling on the impairment of pensions and to wait until impairment becomes an issue. He said a ruling would trigger a costly legal battle.

Stockton has spent $13.9 million on the bankruptcy filed two years ago, a report filed last week said. The Orrick, Herrington and Sutcliffe law firm received $10.4 million that includes $500,000 to $1 million for consultants and vendors.

Franklin argued during the trial that Stockton’s plan, which builds a large reserve and understates revenue, will have enough money to pay both Franklin and the full CalPERS pension obligations.

“This isn’t a case of inability to pay; it’s unwillingness to pay,” said the Franklin attorney, James Johnston.

Franklin has pointed to the lack of consistency or fairness in the Stockton proposal to pay Franklin a penny on the dollar while paying the largest creditor, CalPERS, in full.

When the judge asked what Franklin is proposing, Johnston said Stockton can impair pensions and treat creditors fairly or assume pension liabilities and pay Franklin a fair share, but it shouldn’t pay CalPERS in full and severely short Franklin.

Johnston

So, the judge asked, Franklin contends pensions should be impaired? “Yes,” replied Johnston. He said the judge’s decision allowing a cut in Stockton retiree health care “comes close” to deciding that state law is pre-empted in bankruptcy.

Among other decisions cited by Johnston was a ruling by Judge Michael McManus in the Vallejo bankruptcy that overturned a city labor contract with an electrical workers union after lengthy mediation failed.

Stockton argues that pensions are needed to be competitive in the job marketplace, particularly for police. The employee share of debt reduction is said to be pay cuts, no retiree health care and a state law giving new hires lower pensions.

“If you attack CalPERS, it’s attacking the retirees and the future retirees,” Margaret Garms, an attorney for the Stockton Police Officers Association, told the judge last week.

Garms said police have had pay cuts totaling about 30 percent. She said only 350 of the 480 authorized police positions are filled. “As fast as they hire new officers people leave,” she said, with an average experience of 2½ years on the job.

“I would urge that the court does not need to address pensions in this case,” said Jason Rios, an attorney for the Stockton retiree committee. He said a pension cut would drop the income of some retirees below the poverty level.

Marc Levinson, an attorney for Stockton, said Franklin rejected a much higher debt payment offer in early negotiations. “Now Franklin wants to pick up everything that’s left and benefit from concessions other creditors made,” he said.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 9 Jun 14

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57 Responses to “Stockton bankruptcy judge may issue two rulings”

Reduce the pensions to the level that likely would have been granted in the absence of the collusion between the Public Sector Unions and Stockton’s elected officials … specifically the trading of Public Sector Unions campaign contributions and election support for favorable votes on pay, pensions, and benefits.

Assuredly, that horse-trading resulted in AT LEAST double what would have otherwise been granted … as evidenced by the fact that (when considering BOTH the MUCH richer pension “formulas” AND the MUCH more generous “provisions” such as very young full retirement ages, VERY liberal definitions of “pensionable compensation”, and the inclusion of COLAs that Private Sector pensions almost never include) Public Sector pensions TYPICALLY have a value at retirement 3x-4x greater than those of Private Sector workers making the SAME pay, retiring at the SAME age, and having the SAME years of service.

I’m no attorney so I don’t understand the legal fine points here. But let’s assume Stockton comes up with a plan that makes all of the creditors happy, including Franklin, while leaving CalPERS untouched. Why then would or should Judge Klein rule on impairment of CalPERS? Wouldn’t he be overreaching into an area that’s not germane to the case?

ElliottJames Says: “I’m no attorney so I don’t understand the legal fine points here. But let’s assume Stockton comes up with a plan that makes all of the creditors happy, including Franklin, while leaving CalPERS untouched. Why then would or should Judge Klein rule on impairment of CalPERS?”

Why shouldn’t he? Just because all the creditors are happy, in your scenario, doesn’t mean Stockton can avoid drifting back in to insolvency/bankruptcy. Stockton is in dire straights. The temporary tax will expire. Employee COMPENSATION and PENSION COSTS are OUT-OF-CONTROL. I believe Judge Klein will consider the plight of taxpayers (and also those citizens not yet paying taxes (children)) -something yourself and seesaw seem to ignore.

While you’re busy considering the bankruptcy impact on CalPERS, Franklin, and the Unions, you seem to miss the point the City of Stockton consists of people and families. Stockton’s City Government isn’t doing the citizens any favors.

Gopichand Jasoos Says: “Judges and decisions are only impartial as long as the ruling favors unions. Else judges are looking for fame, sold out, crooked, etc. How can one possibly argue against these pearls from SeeSaw?”

Seesaw still thinks O.J. is innocent. I wouldn’t concern myself with what the little old retired lady with a tincy-winy pension says. S/he stills claims to be a victim while chiming in on every CalPERS topic claiming/arguing against any/every attempt at pension reform.

If s/he isn’t Dave Lowie maybe s/he is his mother. Either way, the stale/ridiculous comments/argument remains the same. And O.J. is still innocent.

Judge Klein should follow the law! The law says that the debtor is responsible for developing its own workout plan, with the approval of the judge. The judge can approve or disapprove, but he cannot legally decide what Stockton has to do. No complainer like Captain has ever come forth and declared what their personal tax liability is to pensions–that is because it is so infinitesimal that there is nothing to report! I remind you again, Captain, I am a taxpayer in the same category as you, and I also have children, and grandchildren. Stockton is the entity that has gotten itself into this situation with poor management, and the affects of the drastic recession added, Captain–not CalPERS.

“Marc Levinson, an attorney for Stockton, said Franklin rejected a much higher debt payment offer in early negotiations. “Now Franklin wants to pick up everything that’s left and benefit from concessions other creditors made,” he said.”

I think Attorney Marc Levinson did a fine job arguing Vallejo was indeed bankrupt. Where he failed Vallejo was when he addressed the city council and endorsed a police contract the city couldn’t afford. It was at that point I realized lawyers should argue the law, at least this one, and let the accoutants determine the financial impact of contracts. IMO, Mr Levinson did a disservice to the City of Vallejo and the citizens when he recommended approval of a very bad contract.

What you’re saying, Captain, is that the judge should rule that Calpers can be impaired even though all parties agree they should not be impaired. That’s the same sort of logic the Red Queen used with Alice. “The rule is, jam yesterday, jam tomorrow, but never jam today.”

@Elliot – do elaborate on your argument that all parties agree that Calpers should not be impaired. Franklin is a party here and is arguing against being stiffed vs. 100% payout to Franklin. Unless your view is that parties not in agreement with Calpers cease being a party. Certainly would be wonderful for Calpers to not be impaired AND Franklin to be paid what is due to them. As wonderful as the belief that there is indeed a Santa somewhere there with a limitless money printing factory.

The federal judge in Detroit has already ruled that pensions can be impaired regardless of what the state says. So the cat is out of the bag. Calpers is looking real stupid filing a brief in the Detroit case where it has zero standing. The writing is on the wall on what Klein will rule in Stockton.

Your comments are so irrelevant it is sickening, Captain! I have never addressed the OJ case! I have never claimed to be a victim! I have never met David Low–but I would like to. I do complain, every day about the cost of my medical insurance–there I am a victim. But, I am no victim when it comes to my pension–I worked hard for it, I am getting it, and I am using it! I support every member of the public sector regardless of what their respective pension situations are. Go suck a lemon Captain!!!

We shall see you owe me gang. Hope it all works out for all, you could care less about anyone but the members of your”guild”. You drip with obstinate selfishness, a sin to be repaid in fire for infinity. Have a blessed day.

Insurance as some here like to believe is not free. It has real world costs and effects. As defaults rise, premiums rise and bond yields reduce and costs increase for bond issuers(which most minicipalities are). I get that pensioners don’t consider any taxpayer footed costs as real costs but insurance ain’t free by any stretch.

Who said it was free? We didn’t just fall off the turnip truck as you like to believe. I happen to be a taxpayer in the same category as you–I foot the same costs you foot. I get that you don’t know a thing about pensioners.

Stockton spent money foolishly when it was coming in. They built parking garages to help pay for it in addition to the tax revenues that were not guaranteed. They did not build roads or infrastructure that would brings jobs, improve quality of life, instead they spent money on bright shiny objects:

$22 million Marina (to dock your boat)
$22 million Baseball Stadium (for civic pride)
$68 million Theatre (for civic pride)
$40 million City Hall (a new one for civic pride)
$32 million on parking garages (to help pay for the other stuff)
$30 million on a river walk and park and on and on to the tune of $265 million, all borrowed on the credit card called bonds.

That’s a 1/4 billion dollars and all of it repossessed or about soon to be. This is what happens when you allow you leaders to spend money on stuff and not on things that have a dare I say it, “return on investment”. They aren’t the only ones and more to come Sacramento and Elk Grove.

Oh, and the city manager and deputy manager make $200,000 a year just like they were a big city manager in SF or LA. That is the dirty little secret of city and county workers. They do salary surveys and compare themselves with BIG city folk to justify high salaries a tax base can’t support unless the city continues to grow with sustainability. But I don’t begrudge anyone the benefits on the back end. Those were promised and enriched in lieu of pay raises. It would have been cheaper to give the pay raises and cut them when times went bad.

But when the money is rolling in everyone wants to spent it on bright shiny objects and postpone the stuff people really need and the stuff pay for the stuff that keeps the toilets flushing.

Billie, All of what you said is true, but you left one VERY material item off that list…. promising grossly excessive pension and benefits to it’s Public Sector workers, promises which in the crazy State of CA, can only go up (often RETROACTIVELY) but never go down when financial circumstances dictate. And shouldn’t we add that your Union’s buying-off your elected officials with campaign contributions and election support exacerbated the situation leading to Stockton’s demise?

Oh, and grossly overcompensating it’s Public Sector workers is NOT a “return on investment”. It’s unnecessary (to attract and retain a qualified workforce), is unfair to it’s Taxpayers, us unsustainable, and simply a theft of Taxpayer wealth.

And quoting …” But I don’t begrudge anyone the benefits on the back end. Those were promised and enriched in lieu of pay raises.”

Now there’s a bit of self-interest,considering that you’re riding this pension/benefits gravy train and don’t want YOUR pension or benefits decreased.

” grossly excessive pension and benefits” is in the eye of the beholder.

” theft of Taxpayer wealth” is libel.

“… promises which…………..…… never go down when financial circumstances dictate” is ignorance or willful disregard for facts. According to the article, existing employees will lose retiree healthcare and have pay reduced, which would result in lower pensions, and new employees will have lower pension formulas. Negotiated contracts for state and other local governments have resulted in higher employee contributions for all employees and lower formulas for new employees.

You may be correct. If the city can reduce employee expenses by reducing pension formulas for future service, or reduce costs by the same amount, or more, by reducing pay and eliminating retiree healthcare, isn’t the result the same?

And isn’t it better for that decision to be made by mutual consent between the city and its employees?

Bille Says: “But I don’t begrudge anyone the benefits on the back end. Those were promised and enriched in lieu of pay raises.”

What a crock. This often repeated nonsense is pure fallacy ( Myth # ?). The truth is the majority of cities have increased benefits substantially and retroactively while also providing COLA wage increases well above any justifiable/actual increase in the cost of living.

Bille, if you can name even 10 of 458 cities that have received increased benefits, “in lieu of pay raises”, I’ll be impressed. Tell me the city and show me the supporting evidence. Tell me the city and show the link to the contract that supports your claim. Show me EVEN 2% of cities that have sacrificed wage increases in lieu of increased benefits. While I’ve set the bar ridiculously low, to give you a chance, I don’t think you can do it.

SDouglas47 Says: ” You may be correct. If the city can reduce employee expenses by reducing pension formulas for future service, or reduce costs by the same amount, or more, by reducing pay and eliminating retiree healthcare, isn’t the result the same?

And isn’t it better for that decision to be made by mutual consent between the city and its employees?”

You would think so but, unfortunately, you’d be asking the same collusive group that created the problem to solve the problem. They aren’t capable. Why do you think every union, and every union funded politician in the state of California, repeat the same thing – “these issues need to be solved at the bargaining table.”

Unfortunately for us taxpayers that above comment is just all to self-serving when you consider the unions and city management are really one and the same, and the council memebers approving the contracts are either former union members or owe their election to the unions which funded their campaign. Of course that isn’t always the case, but it’s true in most cases. And it’s especially true in very blue-collar towns.

The more blue-collar the city … the more control the unions have have over the taxpayer purse … the more the red the ink is spilled all over the budget.

Oakland will soon be bankrupt and it won’t be because nobody could see it coming. It will be because nobody could stop it from happening. I’m not sure if, in Oakland’s case, that’s a curse or a blessing. I’ll call it a blessing. What happens when L.A. goes bankrupt? Sacramento is on-deck.

Tough Love Says: “SDouglas47, While numerically you are correct, it’s the stronger permanency of pension formula and provision reductions that make it the FAR better choice.

Pay cuts today can easily be reversed at a later date by a more accommodating (or better BOUGHT-OFF) elected officials.”

TL, JB said, during his pension reform roll-out, that if employees don’t agree with the reforms you can cut their pay – pay isn’t a vested right. Unfortunately there is little political will in this very democratic state to even do that. The best we can expect, and this is an actual experience, from our union controlled city council is to approve a contract whereby the employees have to pay their share of the pension contribution. The staggered off-setting raises were granted six months prior to the employees contribution increases which cost money.

The city manager, even though the groups in question received an average of 5% COLA increases during the great recession (because it was in the contract), claimed our city would save a couple million over the two year contract. Not true. Not only did the city grant raises six months prior to the employees increased contributions but they also granted every employee an additional 2 weeks vacation. When you’re talking public safety many of those time-off hours are converted into overtime pay. They don’t actually work more hours they just get paid more.

The only thing mentioned in the news article about the contract was the dollars saved by requiring the employees to pay a portion of their own pension contribution. The City Manager was the one quoting the savings while never mentioning the offsetting raises. Nothing was mentioned about the cost of providing every employee with what amounted to 2 additional weeks of vacation. It wasn’t until months later when the contract was actually published that the truth came out.

I guess my point is that it’s almost impossible to get any concessions from these unions when they control the entire bargaining table. Vallejo gave their police department what amounted to an 8 percent raise over two years, and it would have been 12% had not some of their comparable cities frozen wages, while they were in bankruptcy facing a 10 million structural defecit. CRAZY!

It’s my understanding that Vallejo is looking at years of structural defecits in the not to distant future. Their staffing levels are at minimum levels while their employee compensation levels are chart toppers. Vallejo’s CalPERS pension contributions will soon be 70% of payroll.

“A related question at the conference was whether public sector collective bargaining and public sector unionization actually succeed in raising compensation. Here there was in fact no conclusive evidence. ”

I’ve seen it with my own eyes and I’ve done the math. I understand all the shennanigans and lies that have led us down the path to 100’s of BILLIONS in unfunded liabilities for work that should have already been paid for. I understand that that no one should be paid a career pension in excess of what’s understood to be the accepted standard for providing a working wage with retirement income. I’m offended that educational incentive pay, car allowances, holiday pay and uniform allowances are included in the pension calculation, etc… etc… etc…

SDouglas47 Says: “According to the article, existing employees will … have pay reduced, which would result in lower pensions”

No they won’t. That’s not how it works. Even it were true, and it isn’t, the employees retiring today are receiving pensions much greater than they ever expected for working less years than they signed up for. The combination of increased pension benefits (and that extends well beyond the 3@50 formula – and includes a multitude of increased benefit enhancements and additional pensionable perks) and the reduced years to achieve full retirement benefits, MOST/ALL OF WHICH were made possible because the CORRUPT CalPERS created every way possible to disburse taxpayer funds to the CalPERS members.

All additional TaxPayer funds (taxpayer reserves really that could be used when earnings fell short – like right now) were viewed by CalPERS, and the CalPERS Board of Corruption, as a BIG POT of MONEY that belonged to the unions. They stole the taxpayer reserves with what’s known as SB 400 (and subsequent legislation). Now we have very generous pension plans that should only be costing taxpayers 16% of payroll (who gets that as a retirement contribution?) but is now costing 30-50% of payroll – on the way to 45-75% of payroll.

To put it in perspective, Public Safety employee earning 150K will be receive an additional $67,500.00 – $112,500.00 contributed to their retirement account every year for the foreseeable future (The average is 90K). What CalPERS told cities is the cost would be 16% of payroll (24K based on a 150k salary). Apparently CalPERS isn’t very good at predicting results.

Based on the multitude of CalPERS scandals and their failure to deliver promised results, if this CalPERS were a private organization they would be bankrupt. They would have lost all customers. They would no longer exist.

To be clear, these things are included in *some* pension systems, not all. And in most cases eliminated for new employees.
……………….
“what’s understood to be the accepted standard for providing a working wage with retirement income.”

Understood by whom? By you or by those actually responsible for attracting and retaining a qualified workforce?

SeeSaw – You trivialized the matter of Stockton stiffing Franklin(all part of a game) and then flip flopped in your next comment. WOW. How do you manage to walk straight with these flip flops? Here is a fact for you, unlike the drivel that you normally try to pass off as fact. Muni defaults on the type of collateralized debt that Franklin holds are quite rare. Less than 1% actually so no it really is not part of the game. To label pensioners as taxpayers too is a joke but not a funny one. For CA at least that is the equivalent of a thief stealing 100 bucks, returning 5 back and claiming — hey I made your day and saved you 5 bucks, go have a party on me.

You are a stand-up comedian–no? It is part of the game for the bond companies and those that insure them–I was not talking about the public sector which has been hit hard with the 2008 recession and topped off by the abolishment of Redevelopment. I hate to make you feel bad, but I am a taxpayer in the same category as you–a fact you cannot refute, not matter how hard you try. You won’t get many laughs with that schtick. I don’t need you to make this day or any other day for me. I an quite fine, thank-you.

Any pension grossly over and above what that profession could possibly get in the private sector via combination of SS+DC is essentially a theft. And there’s quite a few of those in CA. The notion of retirement in your late 40’s or early 50’s, collecting 90% of your prior check till you die(and sometimes making more than your highest paycheck ever) and double dipping is laughably ludicrous beyond belief. Only in Greece and California can this be passed off as business as usual. And this is just a sampling of the abuses!

Elliot James, In almost all CA cities the police pension is 3%@50 so (if we call age 53 still in the early 50s), are you saying that no retired officers with 30 years of service started employment at age 23 or younger?

Any discussion of pensions outside the context of total compensation is irrelevant. Even the most conservative studies show that SOME government workers earn far less than their private sector equivalents. This includes factoring in what they call the *true* value of pensions and health care.

The same studies show that many public sector workers earn more, particularly in the lower paid, less educated state positions, than equivalent private sector workers. But to call this “theft” is out of line.

When 2 parties (Public Sector Unions and our elected officials) collude (via an understanding, however unstated, that campaign contributions and election support will be returned with favorable votes on pay, pensions, and benefits) to cheat a 3-rd party payor (the Taxpayers), I consider that to be theft of Taxpayer wealth.

Not being an attorney, there may be a better legal term, but you get the point.

Not tell me that it doesn’t happen …….. all the time, and just about everywhere……….

Gopichand implied that pensioners are thieves. My question was whether he accused ALL pensioners of being thieves.

It sounds as if his definition of thief is anyone who earns more, or has a larger pension than the average taxpayer is a thief. Or anyone in a union is a thief, by definition.

Most comparative compensation surveys conclude that the average public sector compensation, including pension and healthcare costs, is “roughly equal” to EQUIVALENT private sector workers.

TOTAL COMPENSATION.

If the compensation of a public worker is the same as a similar private sector worker, how can he be defined as a thief? IF two workers have the SAME total compensation, including benefit costs, and one of those allots twenty percent to retirement savings while the other allots only ten percent, the first worker will have a MUCH larger pension, and will have ten percent less spendable income while working. That does not make him a thief.

The MOST conservative compensation studies, using what they call the “true cost” of pensions and healthcare, AND the “value” of job security, determine that the public sector worker may have a premium of “as much as 30%”. Even these conservative studies note that the lower paid, less educated public workers usually have a higher comparative compensation, while many higher educated workers earn MUCH less than private sector peers. MUCH LESS, even including all pension and health care costs. Are these higher paid public workers thieves also?

” Professional degree holders such as doctors and lawyers and individuals with doctoral degrees appear to receive total compensation roughly 18 percent below private-sector levels..”

And, it logically follows that AEI is biased in the other direction when they claim a twenty percent total compensation benefit for public employees over private.

For the sake of argument, assume a compromise, that state employees have a ten percent advantage in total compensation.

The point is, ALL these studies result in a final figure which is a weighted average. But in reality, some state workers (usually lower paid, less educated) state workers have a higher compensation than their private sector peers, while higher educated or skilled state workers earn less than equivalent private sector workers.

All studies, whether financed by union thugs or by the Heritage Institute, indicate there is a continuum, where some state workers earn more, some less, and some “roughly equal” to the private sector.

According to Briggs and Richwine (who don’t seem to be “bought off” by unions), public sector workers with a high school education receive a compensation premium of 19%. Professional degree holders a penalty of 17%. This is TOTAL compensation, factoring in the true cost of pensions and health care.

The natural question is, are these degreed professionals “thieves”, according to Gopichand? And if you MATERIALLY reduce their retirement formulas for future work, don’t you make their compensation penalty even worse?

Again, this is total compensation. Biggs, Richwine, The Heritage Foundation, all agree with the union thugs that in salary alone, state workers have anAVERAGE disadvantage of about twelve percent. Ranging from ” about even” for high school graduates to a thirty seven percent penalty for state employees with professional degrees.

SDpuglas47, Silly to belabor this point, but since you are a Police office (retired already ?), if we look at just that occupation alone, it’s virtually impossible to deny that you are VASTLY overcompensated (cash pay + pensions + benefits). I have demonstrated that many times before, one of which is pasted below and shows that for a Private sector worker to get the SAME pension as you get (at the same age and with the same service years), they would need to earn 4.62 times your salary …. no matter what your salary level is. Absolutely, an absurd level of generosity.

The great-risk argument falls flat because police are not even on the list of the country’s most dangerous occupations (all of which, perhaps with the exception of major commercial airline pilots, earn FAR less) and when your ridiculously generous pension formula of 3%@50 is combined with very young full (unreduced) retirement ages, post retirement COLAs, and retire healthcare worth an additional $250-$400K (for family coverage) it’s not hard to see how the combined generosity of “formula” and “provisions” has gotten WAY out of hand.

Notwithstanding the (as yet Court untested) legal barriers to change, there are NO workable financial solutions to the pension mess that do not include VERY material (50+%) reductions in the pension accrual rate for the FUTURE Service of CURRENT workers.

———————————————————————-
In California the typical recent Pubic Safety retiree’s pension starts at just about $100,000 and is COLA adjusted thereafter. By looking at a table of life annuity factors, such a single life immediate annuity has a value or cost upon retirement of just about $1.8 Million (18 times the annual pension). One way to judge if that is reasonable (or “appropriate and fair”) is to answer the question … What would be the necessary INCOME LEVEL (or Final Average Salary … FAS) of a Private Sector worker with the TYPICAL Private Sector DB pension (for the few Private Sector workers lucky enough to still be covered by such a pensions) to obtain a pension from his/her employer with the SAME $1.8 Million “value” upon retirement ?

Assume the CA safety worker has the typical 3% of final average pay per-year-of-service pension factor, had a final average salary of $111,111, 30 years of service and retired at age 55… resulting in the starting pension of $111,111 x .03 x 30 = $100,000. Next, let’s assume the Private Sector worker’s DB pension formula is 1.25% per year of service (a quite typical formula), is NOT COLA adjusted (routine in PRIVATE Sector Plans), and has a full unreduced retirement age of 62 (with a 4% reduction in pension payout for each year of age that you retire begin collecting your pension before age 62).

For a given Final Average Salary (FAS), this Private Sector worker’s annual pension (P) is given by the formula P = (FAS x 30 x .0125)x (1-((62-55)x.04)), with the latter part of that formula being the adjustment for early retirement at age 55. Shortening that formula, we have P = (FAS x 30 x .0125) x 0.72.

From above, we saw that the Safety worker’s pension (being COLA-increased) has a lump sum “value” of 18 times the annual STARTING pension. With no COLA increases, the lump sum “value” is only 13 times the annual pension. Therefore the Lump Sum “value” of the Private Sector worker’s pension is given by 13 x P, and since we are SETTING that value equal to the $1.8 Million value of the safety worker’s pension we have $1,800,000 = 13 x P, and solving for P, we have P= $1,800,000/13 = $138,462. This Private Sector non-COLA-increased annual pension of $138,462 can be looked at as being mathematically equivalent to an otherwise identical pension starting at $100,000 that includes 3% annual COLA increases (i.e., the Safety worker’s pension).

Now since we know the annual Private Sector worker’s annual pension “P”, we can plug it into my above formula of P = (FAS x 30 x .0125) x 0.72 to solve for FAS. Doing so we have, $138,462 = (FAS x 30 x .0125) x 0.72, from which

FAS = $138,462/(30 x 0.0125 x 0.72) = $512,822

What this shows is that a Private Sector worker (with a TYPICAL DB pension formula and provisions) would need to have a final average salary of $512,812 to generate a pension from his/her employer with the SAME $1.8 Million “value” as the TYPICAL Safety worker pension …. or $512,822/$111,111 = 4.62 times the Safety worker’s salary.

And for the skeptics that say …. this can’t be correct …. we can just reverse the order of calculations and SHOW that this $512,822 PRIVATE Sector salary is indeed necessary to generate a pension with a “value” equal to that (the $1.8 Million) of the Public Sector Safety worker … as follows:

While most reasonable people would suggest that (give the nature of the occupations) Safety workers should receive pensions equivalent to Private Sector workers with salaries say 10% or 25% or 50% greater than they, I find it incredulous to believe that ANYONE would feel it appropriate to provide the TYPICAL CA Safety worker retiree with a pension equivalent to that of the Private Sector worker making over $500,000 annually. Taxpayers (who pay for all but the 10-20% of Total Coat Public Sector pensions typically paid for by the worker’s own contributions and the investment earnings thereon) simply cannot afford anything even remotely close to this level of generosity.

And to preemptively address the anticipated comeback ………… the 4.62 times greater CA safety pension is NOT a function of the Officer’s final pay. It would remain 4.62% even if the officer’s final pay (and hence starting pension) were 10%, 20% or even 50% lower.

The 4.62 time greater CA Safety worker pension results from the MUCH richer Formula and MUCH more generous “provisions” as follows:

Once more. A typical doctor or attorney working for the state. According to Biggs and Richwine,

Cash pay is approximately 37% less than a typical private sector counterpart.
Add the value of vacation, holidays, and sick leave.
Add the TRUE cost of pension, discounted at 4.3%
Add the cost of retiree healthcare, again, discounted at 4.3%

The doctor or attorney still receives about 17% less in total compensation than a private sector equivalent. This is not a study done by union shills. It’s from the American Enterprise Institute.

My apologies. Apparently I misunderstood. I can’t find any mistakes in your math. No argument, no debate. It’s impressive. Impeccable, as far as I can see.

But you are not comparing total compensation. You are comparing pensions. You’re hung up on cops and firemen. That’s why I suggested doctor or attorney, where there is a reasonable private sector counterpart.

Briggs takes the cash pay of a state doctor, adds the TRUE value of the pension cost (not just what the state ACTUALLY contributes) and the true value of health care and retiree health care. The total compensation calculates to about 17% LESS than the average private sector doctor earns.

Depending on how the private doctor allocates his income, he may or may not have a better retirement income than the state doctor. If he invests twenty percent of all income for retirement, his retirement income may be about the same as the public pension. If he only puts back six percent, the public sector doctor will have a MUCH better retirement, but it does not follow that he is “overcompensated”.